Monday, July 27, 2009

Time for Hearings

Hear that sound? something between a buzz and a whine? That's the sound of the finance industry lobby revving its engines (and mobilizing its membership) to kill the Obama administration's ambitious plan to overhaul how the industry is regulated.

This legislation has been flying under the proverbial radar to a certain extent because of the even more contentious battle over health care reform. While our health care system is certainly broken beyond the point of applying band-aids, it was not responsible for the economic mess we are now in (and will be in for some time). The banking/investment industry was, and bringing it to heel must be the centerpiece of an economic recovery.

It comes as no surprise that the banks and the hedge-funds would oppose any effort to regulate their behavior - though doing so requires them to deny that anything has gone wrong, that they bear any responsibility for what has happened, or that the Federal government has an obligation to protect the vast majority of Americans who aren't investors in hedge fund from their greed, dishonesty and down-right stupidity. Despite all this, they remain a powerful and effective lobby - especially with craven Congresspeople - and they have no counterweight on the Hill.

Which is why I think Congress needs to hold hearings on the financial collapse of 2008. Congress needs to investigate what happened and who was responsible for it, not so there can be indictments and trials and jail terms (though I would sorely love to see all of that). Rather, hearings are necessary to create a narrative through which the Treasury's plans for regulation can be understood by the public.

The banking industry has already framed the issue in a way which it feels will kill it: a few bad apples; don't stiffle financial innovation; regulation is unnecessary interference in the free market. The Obama administration, therefore, needs to offer a different frame: bankers and investment houses got fabulously rich at the expense of the rest of us; much of what they did was unethical; markets work best with clear and effective rules. Hearings are a way to establish that frame and to write that narrative. In other words, hearings may be the best way to generate the public anger necessary to overcome the influence of the banking lobby.

Instead, roughly 200 members of Congress have signed on to a petition (authored by -who else - Ron Paul) to create a congressional audit of the Federal Reserve. That may or may not be a fine idea, but the notion that the Fed is responsible for the Great Recession, rather than AIG, Countrywide, BoA etc, is patently absurd. Instead of directing its anger at the Fed, Congress needs to direct it those private sector players who are really to blame.

We won't get serious reform of the financial sector without public anger to support it. And if we don't get it, we can all look forward to more of the credit-default-swapping, mortgage-backed-securitizing, derivative-selling shenanigans that landed us where we are now.